Oil prices rose on Monday, recovering a measure of recent losses as investors bet that an economic reopening in China and a less hawkish rhetoric from the Federal Reserve will help spur a recovery in crude demand this year.
"It looks like the oil rally has been driven by the news that China reopened its borders to travelers over the weekend," said Colin Cieszynski, chief market strategist at SIA Wealth Management.
“Traders appear to have taken this move as a sign that China is serious about reopening its economy, which could boost its demand for energy and resources in general,” he told MarketWatch.
China reopened its international borders for the first time since 2020, a clear indication that the country intends to pivot away completely from the strict zero-Covid policy that ravaged local economic growth over the past three years.
Oil markets are betting that this reopening will spur a sharp recovery in demand, as more portions of the world’s largest crude importer spring back into pre-pandemic levels of production. Some analysts forecast that crude prices could surge to as high as $140 a barrel this year on a recovery in Chinese demand.
Brent oil futures rose 0.8% to $79.23 a barrel, while West Texas Intermediate crude futures grew 0.7% to $74.31 a barrel by 20:26 ET (01:26 GMT).
But both contracts were nursing their worst weekly loss in a month, tumbling nearly 9% in the first trading week of 2023.
Still, oil markets were also supported by hopes that the Federal Reserve will reverse its hawkish stance in the coming months, as data on Friday indicated further cooling in the United States jobs market. A slower pace of rate hikes by the Fed is expected to ease some pressure on the U.S. economy and support crude demand.
Oil consumption in the world’s largest economy remained robust through December, as the holiday season and cold weather pushed up gasoline and heating oil demand.
The U.S. Department of Energy recently rejected a bid from companies to begin restocking the country’s Strategic Petroleum Reserve from February, stating that crude prices were still too high, committing to repurchasing oil barrels as prices drop towards the low $70s or upper $60s.
“The potential upside for oil futures remains limited right now though as economic uncertainty and recession worries continue to weigh on the broader demand outlook for 2023,” Tyler Richey, co-editor at Sevens Report Research, told MarketWatch.
© 2007-2022 Fusion Media Limited. All Rights Reserved.